Regulatory Shifts and Weather Woes: Driving Down Global Biodiesel Prices

During the week ending on June 7th, 2024, several pivotal factors contributed to the global decline in Biodiesel prices across both the European and APAC regions. In Europe, the downward trend was primarily driven by a significant drop in demand from Asia, strategic manoeuvres by traders, and seasonal adjustments in Biodiesel usage. Simultaneously, the Biodiesel market in Asia experienced a notable decline, chiefly due to lower palm oil prices. This situation was exacerbated by various EU regulatory actions, regional oversupply, and weak demand, all of which intensified the downward pressure on Biodiesel prices in the region.

In the European market, Biodiesel prices slightly decreased by nearly 1%, from USD 1190/MT to USD 1180/MT in Germany. This decline is primarily attributed to the reduction in palm oil prices in importing countries, leading to a drop in commodity prices in the upstream market. France remains the leading producer of rapeseed in the EU-27, yet the EU Commission has reported reduced rapeseed harvests in Romania, Germany, Poland, and the Czech Republic. Concerns over significant yield declines have arisen due to freezing temperatures and excessive rainfall, with frost, hail, and snow following recent summery weather exacerbating these worries.

In Germany, the decline in middle distillate prices is driven by decreased demand, although logistical challenges persist following recent flooding. Heavy continuous rainfall has led to high water levels and flooding in southern Germany and along the Rhine River. The downstream market in Bavaria and along the Danube River has faced severe restrictions due to flooding, affecting tank farms in Bavaria. Some tanks were drained empty as flooded tracks made resupplying by train difficult. Despite the impact of the floods, the effect on southern German refineries is not yet significant enough to make imports more profitable. However, with more rain expected in southern Germany, the Rhine near Maxau, close to Karlsruhe, is likely to be closed from the evening of June 11 for two or three days. If this section of the Rhine is closed, barges from the Amsterdam-Rotterdam-Antwerp (ARA) trading hub will be unable to reach Switzerland.

In the APAC region, Biodiesel prices have also declined. Major exporters such as Indonesia and Malaysia have experienced price drops due to reduced demand. Malaysian palm oil futures fell in response to weaker rival oils and lower export expectations for June, although a weaker ringgit—Malaysia's currency—helped limit the losses. The decline in the upstream market and the weaker currency have further driven down Biodiesel prices, along with a decrease in crude oil prices this week. Weaker crude oil futures make palm oil a less attractive option for Biodiesel feedstock, although a weaker ringgit makes palm oil more appealing to foreign currency holders.

France and Germany have urged the European Union to implement stricter checks on biofuel suppliers from overseas, in light of ongoing EU investigations into alleged fraud in biofuel imports from Asia. The European Biodiesel industry has noted a significant increase in imports from China and suspects that these imports are being misrepresented. Specifically, there is concern that the biofuels are falsely claimed to be made from recycled oil and fat, while in reality, they are produced using cheaper and less sustainable virgin oil.

According to ChemAnalyst, Biodiesel prices are projected to decline in the coming weeks. This anticipated downturn is largely driven by expected decreases in demand from the downstream transportation sector. Extensive flooding in significant parts of Europe has resulted in transportation stagnation, subsequently reducing the need for biofuels. In addition, the APAC region is facing ongoing restrictions that are likely to continue impacting prices. The European Union harbours suspicions that the APAC region is exporting Biodiesel of lower quality, which has led to a decrease in demand from this region. This trend is expected to persist for several more weeks, indicating that Biodiesel prices may continue a downward trajectory. These combined factors suggest a sustained period of declining prices in the Biodiesel market.